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Corporate Insiders Are Excited About These 3 Stocks

Hedge fund managers and other stock market participants seem to be divided into two camps when it comes to how undervalued or overvalued they believe the U.S equity markets are at the moment. The cheap money mode pursued by the Federal Reserve is likely to be stopped in the near future, but it might take quite a while until alternative asset classes will become more attractive relative to equities. There is a wide array of factors that can affect the U.S economy and the underlying strength and potential of U.S-listed companies, so it is nearly impossible to predict where the market is heading from here. However, one can turn his or her attention to insider trading activity in order to find potential investment opportunities. Corporate insiders may sell stock for numerous reasons that are not related to their companies’ prospects, but they buy shares for one major reason: they believe the market underrates the potential and value of their companies. That being said, the following article will disclose the insider buying witnessed at three companies, and will also discuss the recent performance of the companies in question.

Most investors can’t outperform the stock market by individually picking stocks because stock returns aren’t evenly distributed. A randomly picked stock has only a 35%-to-45% chance (depending on the investment horizon) to outperform the market. There are a few exceptions, one of which is when it comes to purchases made by corporate insiders. Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned 102% over the ensuing 38 months, outperforming the S&P 500 Index by more than 53 percentage points (read more details here). The trick is focusing only on the best small-cap stock picks of funds, not their large-cap stock picks which are extensively covered by analysts and followed by almost everybody.

City Office REIT Inc. (NYSE:CIO) is one of the three companies that has seen strong insider buying activity lately. Director Samuel Belzberg purchased a 55,000-share block on Monday at a price of $11.10 per share, raising his stake to 138,751 shares. The equity real estate investment trust (REIT) owns 14 properties as of September 30, which contain a total of 28 office buildings. The REIT’s business primarily involves owning and acquiring office properties and them leasing the space to tenants. City Office REIT Inc. (NYSE:CIO) primarily targets markets that are anticipated to experience favorable economic growth and growing populations, so its financial performance mainly depends on management’s ability to accurately predict which markets to invest in and improve the occupancy rates of the leased space in those markets. As of September 30, the REIT had leased roughly 95% of its properties. Meanwhile, shares of City Office REIT are down by almost 10% since the beginning of the year, so the Director might have bet on stock price appreciation in the upcoming months while benefiting from the company’s quarterly cash dividend of $0.235 per share. Five hedge funds monitored by Insider Monkey were invested in the REIT at the end of the third quarter and had stockpiled 4.80% of its outstanding common stock as of that time. Renaissance Technologies owns a mere 71,849 shares of City Office REIT Inc. (NYSE:CIO) as of September 30.

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Let’s head to the next page of the article, where we discuss the insider buying activity at Campus Crest Communities Inc. (NYSE:CCG) and Stage Stores Inc. (NYSE:SSI).

We can now refocus our attention on Campus Crest Communities Inc. (NYSE:CCG), which has seen three different insiders purchase stock so far this week. President and Chief Investment Officer Aaron Scott Halfacre reported buying 10,000 shares on Tuesday at a weighted average price of $6.61, lifting his overall holdings to 166,250 shares. Director Curtis B. McWilliams snapped up 10,000 shares on the same day at prices in the range of $6.61-to-$6.64 per share. The Director currently holds exactly 17,000 shares. Raymond C. Mikulich, another Member of the company’s Board of Directors, acquired 18,913 shares on Monday and 10,000 shares on Tuesday at prices between $6.61 and $6.63, and currently owns 61,900 units of common stock.

In mid-October, the REIT announced a merger agreement with Harrison Street Real Estate Capital LLC, under which Harrison Street is set to purchase all shares of Campus Crest for approximately $7.02 per share. This sale price includes the net sale proceeds of roughly $0.12 per share from a separate sale of its ownership interest in its Evo Montreal joint venture. Thus, it might be the case that these insiders are confident in the success of the merger and believe they will benefit from the discrepancy between the current share price and sale price of the stock. Derek C. Schrier’s Indaba Capital Management was the largest shareholder of Campus Crest Communities Inc. (NYSE:CCG) within our database at the end of the third quarter, holding 5.93 million shares.

Stage Stores Inc. (NYSE:SSI) has seen six different insiders acquire stock in the past several days, so let’s lay out the most noteworthy purchases. To start with, President and Chief Executive Officer Michael L. Glazer bought a 20,000-share block on Friday at a weighted average cost of $6.14, winching up his stake to 402,994 shares. Chairman William J. Montgoris added 10,000 shares, which were acquired at a price of $6.25 per share to his position that now comprises 86,834 shares. Director Ralph P. Scozzafava also purchased 10,000 shares on Friday at a weighted average price of $6.08 and currently holds 34,987 shares. Elaine D. Crowley, another Director of Stage Stores, bought 10,000 shares at prices ranging from $6.83-to-$6.84, lifting up her position to 20,799 shares. Last but not least, Director Alan J. Barocas grabbed 7,500 shares on Monday at a weighted average price of $6.90 and currently owns a 60,894-share stake. This insider bullishness comes after the department store reported disappointing third quarter financial results, which sent the stock plummeting by more than 25% (read more details). The stock is down by 64% for the year, so these insiders are either attempting to put a concerted halt to the recent sell-off or are confident that they will obtain long-term gains from the beaten-down stock.  Steve Cohen’s Point72 Asset Management acquired a 210,100-share stake in Stage Stores Inc. (NYSE:SSI) during the September quarter.

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Disclosure: None

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